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The "low volatility anomaly," as it's called, is real. Stocks with a history of low volatility usually avoid the boom-and-bust trading of other sectors, helping them outperform in the long run. But "boring" is experiencing a mini-boom this year: And when low-volatility stocks become hot, by definition they're on their way to becoming something else.

QUANTS SEE OTHER SIGNS that the trend is stretched. Research firm Markit ran data for Barron's last week on the components of the two ETFs mentioned above. They found that the underlying stocks' risk-adjusted returns have been higher than the S&P 500's for three straight years. Ned Davis Research analyst Neil Leeson notes that the PowerShares fund has not only delivered on the promise of falling more softly in a selloff; it is keeping up with S&P 500's advances on good days and even spent a short period during February rising as the rest of the index was falling. "There comes a point when there are enough investors pushing low-volatility stocks higher that they're no longer 'low volatility,' " says Leeson, who expects these funds to cool off. "The characteristics have changed."

The PowerShares fund, whose methodology tracks the last 12 months' least-volatile stocks, may be more vulnerable to a shift in sentiment. Nearly two-thirds of its holdings are in high-performing utilities (31%), consumer staples (24%), and health care (9%). The iShares fund may be more insulated if boring suddenly becomes boring again, in part because it leans less heavily on those groups. The iShares fund also could get a buffer from its efforts to limit constituents' correlation with one another, with some unexpected holdings like
Yahoo!YHOO -3.2645658580820673%Yahoo! Inc.U.S.: NasdaqUSD42.67
-1.44-3.2645658580820673%
/Date(1425419761352-0600)/
Volume (Delayed 15m)
:
19181474
P/E Ratio
5.745706919805558Market Cap
41292296632.1539
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N/ARev. per Employee
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(YHOO) and
Home Depot HD -0.08611780916293489%Home Depot Inc.U.S.: NYSEUSD116.02
-0.1-0.08611780916293489%
/Date(1425419761367-0600)/
Volume (Delayed 15m)
:
2907888
P/E Ratio
26.25339366515837Market Cap
153026077921.278
Dividend Yield
2.033781454670803% Rev. per Employee
227879More quote details and news »HDinYour ValueYour ChangeShort position
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The good news for fund investors is that overcrowded stocks will get booted from these ETFs when the indexes rebalance in favor of steadier hands. The bigger trend, of course, could be just like the search for yield: The more investors pile in, the fewer attractive options there are anywhere, in this case meaning fewer "boring" stocks across the entire market.

The other piece of good news: The long-term trend of outperformance for staid stocks is very much intact. Fund managers and aggressive investors show few signs that they'll cease crowding "high beta" stocks in search of a quick win, which is the source of the low-volatility anomaly to begin with.